10% penalty – new law for public safety employees
You recently posted (09/18) a new law exempting public safety employees from the 10% penalty at age 50. The deeper question and statement from an office controlling a government pension plan:
“This Revenue Ruling primarily states that if a plan (Deferred Comp 457 plan in our case) allows rollover contributions from other plans (DROP plan in our case) and these rollovers are separately accounted for, any distributions from the “Rollover account” are considered as if made by the “Deferred Comp plan” and subject to the distribution rules normally governing “Deferred Comp Plans”. The DROP plan is a governmental plan under IRC section 414 which is a “Defined Benefit Plan”, the Deferred Comp Plan is a IRC section 457 governmental plan but it is not a “Defined Benefit Plan” (therefore it is a Defined Contribution Plan).”
The DROP stands for ‘Deferred Retirement Optional Plan’
Does the 457 plan qualify for the exemption of the 10% penalty of THE 401(a) rollover monies from the DROP Defined Benefit Plan?
Thank you
Permalink Submitted by Alan - IRA critic on Fri, 2015-10-02 22:48
I expect that the age 50 penalty exception would apply to distributions from the DROP plan. As long as the employee is an eligible PSO, the penalty is waived whether the distribution is from a DB plan or DC plan. Before the recent legislation, the age 55 separation rule would have applied to DROP plan distributions. Plans that otherwise have an early withdrawal penalty have always required separate accounting when rolled into a 457 plan to determine the early withdrawal penalty. But the exceptions still apply to the DROP balance in the same manner as if the DROP had not been rolled into the 457.